Ross McDonald | Banker | Strategist | CFO

GlobalScot

Ross McDonald, President Clean West, is honoured and delighted to be nominated a GlobalScot, being a network of a few hundred international Scottish leaders invited by the Scottish government to help mentor Scottish growth companies. The GlobalScot nomination was confirmed in late 2009 with a personal invitation letter from Alex Salmond, First Minister for Scotland. Clean West expertise in renewable energy is timely both given the increasing emergence of clean technology ventures plus also the 2010 launch of the UK feed-in tariff. Clean West embraces the opportunity to leverage its expertise and international network, as a GlobalScot, for the benefit of promising Scottish companies.

SFU Guest Speaker - Early-stage finance

Clean West is always delighted to interact with entrepreneurs. In November 2009, Ross McDonald of Clean West, was a guest speaker to an entrepreneurship class at Simon Fraser University, Vancouver.

A PDF file of the related slides can be downloaded.

Canadian Waste Recycling Expo

The 12th annual Canadian Waste and Recycling Expo will take place in Vancouver, Canada, on 28th/29th October 2009. The event strives to bring together various stakeholders - including equipment manufacturers, municipal/other buyers, site operators, policy makers and expert advisors - and is targeted as a Canada-wide, rather than BC specific, event.

In addition to the exhibition hall then two days of expert sessions are available. Free exhibition entry tickets are available via CWRE.

Clean West, a clean energy corporate finance firm, is positive about the waste to energy sector so will attend the event on Thursday 29th October.

US green company rankings

Curious about the sustainability credentials of large US companies? Newsweek has just published its rankings of the top 500 Green Companies, based on a methodology supported by KLD Research and Analytics, Trucost and Corporate Register.

The top firms? Check out the article or rankings for details.

BCIC Connect 09 event

Ross McDonald, President of Clean West, today will attend Connect 09, the annual landmark event of the BC Innovation Council, as a nominated technology leader within the clean energy / clean technology sector.

Connect '09 will bring together 500+ company executives, academics and entrepreneurs for a series of panel sessions, awards and a huge Structured Network session.

The Structured Network session will include a number of industry-specific network areas, at which a few local technology leaders will interact with and provide guidance to event attendees. Clean West encourages BC innovators and policy-setters to attend this commendable event. For those with interest in clean energy or clean technology - such as wind power, solar power, or biomass / waste to energy - then feel free to visit the clean technology stand in the Structured Network session to make an introduction. See you there.

BC lessons from Ontario FIT

Clark Wilson LLP's highly informative blog Megawatt, recently published a posting that raised ten lessons that British Columbia could take from the Ontario feed-in tariff.

Clean West applauds these informed suggestions and agrees that British Columbia can learn numerous energy policy and leadership lessons from Ontario. But it can similarly take ideas from the US and other geographies.

Clean energy developers will question Why BC? As will investors. Ontario offers higher off-take prices (and therefore investor returns) and substantially lower developer risk (feed-in tariff vs clean call) than BC. The US offers substantial financial incentives (that boost returns and lower risk). In the absence of compelling ties to BC, or material sunk costs in BC projects, then developers and investors will simply choose other geographies over BC. Clean West sees this trend in the marketplace.

Ontario's feed-in tariff is as bold as it is controversial. The related power acquisition cost for clean power is high (utility wind prices escalate from 13.5c/kWh versus 10c in BC SOP, solar rooftop up to 80c/kWh). Yet, the provincial content requirements are very strict and escalate further in time. As a result then Ontario will create jobs across the clean energy equipment and service value chains and also stimulate clean energy production. From engineer installers that put solar panels on residential rooftops to manufacturers of wind turbine blades and gears, then jobs will be created and a new industry will be born. Ontario has learned from its RESOP challenges and make better policy. Clean West celebrates the Ontario feed-in tariff.

BC relishes technological innovation. It has abundant talented people with highly creative ideas. And supportive policy. This is absolutely fantastic. No question. But if BC has the intent to meaningfully produce clean energy, in addition to simulate cleantech IP, then it needs to demonstrate to developers and institutional investors that BC is worth their attention. Policy makers should reflection on the Ontario / BC items in the list per Clark Wilson LLP, and also consider the US and other geographies (e.g. offshore wind in Europe).

Yet there is a silver lining. BC policymakers can learn from the successes and mistakes of their peers elsewhere. As my old business school professor, Costas Markides, advocates in his corporate strategy book Fast Secondthen second-movers have the luxury of speed and cost over their first-mover cousins. Second-movers can avoid the tardy processes and expensive budgets inherent in creating something from scratch.

BC is blessed with significant resources, both natural and people. It has the fortuitous opportunity to steal great ideas, avoid pitfalls and race to be a clean energy leader. Or not.

Ontario feed-in tariffs

Ross McDonald welcomes the Ontario Power Authority launch of the first feed-in tariff of North America.

Feed-in tariffs are not a new concept. They were introduced in Europe many years ago (e.g. Germany 1990, Spain 1994). But they are widely credited as the primary reason for the substantial uptake in clean energy production, and therefore clean technology and equipment manufacture, in selected European geographies. For example then in 1990 Germany had 56MW wind power, 2MW solar power and 190MW biomass power. By 2008 this had grown to 24GW wind power, 5GW solar power and 3GW biomass power.

So what's the big deal? Feed-in tariffs stimulate the development of clean energy power. Key aspects of the OPA FIT policy are noted below.
■ Power type - various renewable power sources - including wind, solar, biomass and biogas
■ Transparency - all PPA terms, including power acquisition cost, are known prior to PPA application.
■ Power capacity - policy has no cap on renewable energy
■ Negotiation - minimal bilateral PPA negotiation as preset standard terms
■ Commitment - 20 year power purchase agreement
■ Timeline - standard terms greatly simplify the PPA approval process, estimated at two to four months

Is there a catch? Yep. The feed-in tariff in Ontario is not just clean power, but creating local jobs. An important mandatory provision is domestic content, which requires developers to purchase a material proportion of products and services from Ontario suppliers.

Will the feed-in tariff improve the attractiveness of Ontario to clean energy developers? Yep, without doubt. It materially lowers developer risk, and enhances returns to make projects more financially viable.

WSJ: Business plans, pitfalls & fixes

John Mullins, Chair of Entrepreneurship at London Business School and my old professor, just published an article in the Wall Street Journal. The article concerns business plans, common pitfalls and how to avoid them.

According to John then the five top business plan pitfalls are:
■ Here I am, Nevermind the problem - excessive technology focus, no commercial application
■ A Coke for every kid in China - assume small market share of 'huge' market
■ Just look at our [paper] profits - impressive analytics, tripping on simple business
■ Our team walks on water - dazzling credentials over relevant experience
■ Everything is beautiful - dismissive or ignorant of risks, challenges

Full article text.

1GW off-shore wind project - London Array

Clean West reports that the London Array is a 1GW nameplate capacity off-shore wind project located 11 km off the south-east coastline of the UK. Over 300 turbines will cover 90 square miles, and it is expected to provide power for 750,000 homes. Or so it was planned.

Since initial formation and permitting in 2006 then the three developers of the London Array - E.ON, Dong Energy and Madsar - have to'd and fro'd through political challenges and financial viability. Indeed in 2008 the project looked likely to collapse.

But no more. Today it was announced that, following a doubling of offshore wind incentives from the government, that the developers will begin construction during the summer of 2008. The 630MW first phase of the London Array, costing two billion pounds, is expected to be operational during 2012, to provide clean power for the 2012 London Olympics.

To put this 1GW project into perspective, the global off-shore wind industry has operational capacity of 1.5GW. The largest single off-shore wind project in operation is less than 200MW.

With one-quarter of Greater London homes soon powered by the London Array and one-half of Scottish homes planned to be powered by multiple off-shore wind projects, then both the UK wind industry and UK wind policy are certainly making substantial strides.

Half of Scotland power generated from wind farms

Those canny Scots intend to build 10 offshore wind farms, capable of generating over 6GW of wind power. The wind farms each have nameplate capacity of between 280MW and 1.5GW. Exclusive land permits were recently issued by the UK Crown Estate.

This is much more than news release about renewable energy. Rather, this initiative has the potential to transform both the off-shore wind industry and Scotland/UK power generation. Such power generation capacity needs to be put into perspective:
■ 1.5GW - Global operational off-shore wind farms (EWEA, Jan09)
■ 2.8GW - Global off-shore wind farms under construction (EWEA, Jan09)
■ 194MW - Largest single operational off-shore wind project (Lynn & Inner Dowsing, UK)
■ 500MW - Largest off-shore wind project under construction (Greater Gabbard, UK)
■ 30,000 jobs - Experts estimate that 4.5 jobs are created per MW of offshore wind
■ 2.8GW - Current clean power generation in Scotland (1.4GW Hydro, 1.3GW onshore wind)
■ 10.3GW - Current power generation in Scotland, from all sources

Clean power has gained substantial momentum in Scotland. Per the Scottish Energy Study, then 3% of energy generation was from renewable sources in 2002. By 2007, clean energy accounted for over 25% of power generation. If 6GW offshore wind were implemented then more than 50% of Scotland's power would come from renewable sources, primarily wind. Such commitment to wind power would make Scotland an international leader within the wind industry.

Ten development sites (numbered per graphic), with nameplate capacity and developer(s):
■ 1. Solway Firth - 300MW, E.ON Climate and Renewable UK Developments Ltd
■ 2. Wigtown Bay - 280MW, Dong Wind (UK) Ltd
■ 3. Kintyre - 378MW, Airtricity Holdings (UK) Ltd
■ 4. Islay - 680MW, Airtricity Holdings (UK) Ltd
■ 5. Argyll Array - 1,500MW, Scottish Power Renewables
■ 6. Beatrice - 920MW, Airtricity Holdings (UK) Ltd, Sea Energy Renewables Ltd
■ 7. Inch Cape - 905MW, NPower Renewables Ltd, Sea Energy Renewables Ltd
■ 8. Bell Rock - 700MW, Airtricity Holdings (UK) Ltd, Fluor Ltd
■ 9. Neart na Gaoithe - 360MW, Mainstream Renewable Power Ltd
■ 10. Forth Array - 415MW, Fred Olsen Renewables Ltd

Business plan shocker

Recently I read the worst ever business plan. It arrived in the mail. Below, in italics, are direct quotations (with spelling corrections) followed by some observations ...

Business plan pitfalls

Being a corporate financier then I read quite a few business plans. Their quality varies substantially. Well prepared, professional business plans stand out from the crowd. They explain the value proposition clearly, evidence assumptions, answer key questions and provide comfort on execution. A few reasons for poor plans are jotted below, along with some guidance and actionable steps ...

VC-venture success

Not all venture capital backed businesses are successful. OK, so that's not exactly a surprising or controversial statement. But how important are factors such as (a) prior experience of entrepreneur, (b) prior success of entrepreneur, (c) experience of venture capital firm in the likely success of VC-backed business? And how important is prior experience or prior success by entrepreneurs in the investment selection criteria by VCs?

It seems widely intuitive that prior entrepreneurial success, experienced VC-backers and even prior entrepreneurial failures could improve the chance of success of a new business. Indeed there could easily be a virtual-circle in effect - with financiers, customers and suppliers of a business providing favorable treatment to an entrepreneur that has a successful track record. Many people express opinions on such matters. But empirical evidence is uncommon.

A recent Harvard Business School working paper, "Performance Persistence in Entrepreneurship", reviewed all the funding, founders, vc-advisors and resulting success (IPO) of all US VC-backed businesses between 1975 and 2003. Their statistical conclusions confirm some common intuitition and highlight a few surprises ...

Private Equity vs Piracy - Wall Street Journal

Over some time now, the private equity has tried to bolster its poor public image. A gulf has emerged between the private equity self-image (best practice management and financing that creates substantial long-term economic value) and the image held by the world at large (slash-and-burn costs, fire employees, short-term profiteers).

Today Wall Street Journal - a highly respected and financier friendly publication - wrote an article that compared the industries of private equity and piracy. OK, so there's a healthy dash of journalistic humour afoot. But it certainly is not helpful to public perception of the industry. Odd that such a prominent industry has incited the rath of so many stakeholders - competition authorities, accountants, taxation policymakers, unions, even industry leaders.

VC poker ?

Seems that VCs, with no exits in sight and starved of fresh investor capital, have found a new hobby - poker. No kidding, the CVCA will shortly host a poker tournament for its members. OK, so it's just entertainment but organised by such a national industry association has the potential to be perceived poorly. Loss-suffering investors and job-fearing entrepreneurs might perhaps wonder why talented VCs don't have their sleeves rolled-up helping portfolio companies survive nevermind excel in these economically troubled times. As for encouraging VCs to gamble, the mind boggles ...

Geothermal potential

Things are looking up for geothermal power producers. Although one of the oldest clean technologies, and widely credited with virtually limitless power generation potential then geothermal makes only a tiny contribution to the energy needs of almost all countries (Iceland being a rare exception). Within clean energy then different technologies appear to move in and out of favour with politicians, utilities, consumers and investors. Geothermal may be on the verge of a burst of growth ...

"Trust me" ...

"When should a director opt to leave the Board of an early-stage company?"
"When should an management member or employee opt to leave an early-stage company?"
I get asked these questions periodically, typically informally over a mentoring glass of wine.

Unquestionably difficult questions, particularly for early-stage firms where stakeholders have material emotional and/or financial investment. Aside from commercial topics such as business growth potential, the decision process involve subjective assessment of trust and ethics of the management team and/or fellow board directors.

There are no absolute truths and there are no easy answers but the following questions can help to surface and assess related concerns ...

TV- Global News

Today saw an impromptu appearance on the lead story of the Global TV BC news channel. This winter then I plan to materially improve my skiing and quite fancy the notion of being a weekend ski instructor. Skiing is a blast and teaching is enjoyable so the combination attracts me. Anyway, a jaunt to Cypress Mountain to inquire about joining them as a ski instructor somehow ended up with my being faced with a camera and microphone! Appearance after 35 seconds.

SFU New Ventures - Financing an early-stage business

Last night I had the pleasure of being a guest speaker to an undergraduate 'New Ventures' entrepreneurship class at Simon Fraser University. The blend of approx 50 business students plus approx 80 engineering students are in the process of developing a business concept and related business plan and investor pitch. Cool.

Top 100 European cleantech firms

A study that lists the Top 100 European Clean Technology companies of 2008 has been jointly published by Library House (a British market research firm run by Doug Richard, a panelist on the UK TV series of Dragons Den) and The Guardian (a British newspaper). The study also highlighted that venture capital firms invested £805 million ($1.4 billion) in European clean technology firms in 2007, double the £407 million ($0.7 billion) of 2006 ...